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2017 Supreme(Raj) 1226
IN THE HIGH COURT OF RAJASTHAN AT JAIPUR BENCH
M.N. Bhandari, J.
Shri Prakash Chand Dhadda - Petitioner
Versus
The Income Tax Settlement Commission - Respondent
S.B. Civil Writ Petition No. 802 of 2014
Decided On : 09-06-2017
Advocate Appeared:
For the Petitioner: Mr. N.M. Ranka, Mr. N.K. Jain
For the Respondent: Mr. Anil Mehta, Ms. Archana
The decoding of figures used in seized documents must be based on material on record and not on presumption.
Headnote:
INCOME TAX - Assessment - Money lending - Decoding of figures - Peak credit theory - Maintainability of writ petition against order of Settlement Commission.
Fact of the Case:
The petitioner, a businessman dealing in emeralds, challenged an order of the Settlement Commission that determined his undisclosed income from money lending activities. The petitioner claimed that the transactions were not money lending but rather sending emeralds on approval, and that the decoding of figures used in the seized documents was incorrect. The petitioner also argued that the Settlement Commission erred in not applying the "peak credit theory" to calculate the undisclosed income.
Finding of the Court:
The court found that the Settlement Commission had sufficient evidence to conclude that the transactions were money lending, not sending emeralds on approval. However, the court held that the Settlement Commission's decoding of the figures used in the seized documents was based on presumption and not on material on record. The court also found that the Settlement Commission had provided well-reasoned grounds for not applying the "peak credit theory" in this case.
Issues: 1. Whether the transactions were money lending or sending emeralds on approval. 2. Whether the decoding of figures used in the seized documents was correct. 3. Whether the Settlement Commission erred in not applying the "peak credit theory". 4. Whether a writ petition is maintainable against an order of the Settlement Commission.
Ratio Decidendi: 1. The court held that the Settlement Commission had sufficient evidence to conclude that the transactions were money lending, not sending emeralds on approval. The court noted that the seized documents contained calculations of interest on a bi-monthly basis, and that the books of account of the parties did not show a single entry of purchase of emeralds said to have been given on approval. 2. The court held that the Settlement Commission's decoding of the figures used in the seized documents was based on presumption and not on material on record. The court noted that the petitioner had admitted that the figure on the documents was 1=100, but the Settlement Commission had taken it to be 1=1,00,000. The court found that there was no evidence to support the Settlement Commission's decoding. 3. The court held that the Settlement Commission had provided well-reasoned grounds for not applying the "peak credit theory" in this case. The court noted that the Settlement Commission had found that the currency notes recovered from the petitioner had writing on them and were related to the transactions, and that this was not a case of unaccounted debit and credit simplicitor. 4. The court held that a writ petition is maintainable against an order of the Settlement Commission. The court noted that the Income Tax Act bars appeals or reviews of Settlement Commission orders, but it does not bar remedies under Article 226 of the Constitution of India.
Final Decision: The court remanded the matter back to the Settlement Commission to decide the issue of decoding afresh, while maintaining the finding regarding the petitioner's involvement in money lending and other issues. The court directed the parties to appear before the Settlement Commission on a specified date, and the Settlement Commission was expected to decide the issue within three months.
M.N. Bhandari, J.
By this writ petition, a challenge is made to the order dated 30th September, 2013 so as the notice of demand and income tax computation dated 01st November, 2013. The further prayer is to accept the undisclosed income of Rs.10 lac or alternatively of Rs.25 lac, as earlier computed.
2. Learned counsel submits that the petitioner is carrying business of trading as well as manufacturing of emeralds on small scale level. He is maintaining regular books of account and had been assessed for income between Rs.1 lac to Rs.5 lac. The Income Tax Department conducted search at the place of Mr. Rajkumar Sharma on 12th November, 1997 wherein some loose papers, note books, currency notes, etc. were found. The Department gave notice to the petitioner under Section 158BD of Income Tax Act, 1961 (for short "the Act of 1961"). The reply to the notice was given followed by submission of income tax return with NIL amount. The petitioner could reveal that Mr. Rajkumar Sharma has approached Income Tax Settlement Commission and his petition has been admitted. To avoid litigation and to have peace in mind, the petitioner also submitted an application before the Commission on 12th November, 1999 offering undisclosed income of Rs.5 lac with intimation to the Assessing Officer. The petitioner denied investment of Rs.3,36,50,000/- by way of money lending to earn interest. The Settlement Commission computed undisclosed income to be of Rs.17 lac after considering Rule 9 Report. The petitioner accepted the aforesaid, however, it was quashed by the High Court with remand of case on a writ petition filed by the Revenue.
3. Learned counsel has explained the facts of the case also. It is submitted that the petitioner was having business relations with Mr. Raj Kumar Sharma, who was getting cut emeralds and sending it to the petitioner on approval basis for onwards sale. The petitioner was purchasing the emeralds and, if not approved, then to return it. The aforesaid has been considered to be a case of money lending and, therein also, the code of one was considered to be one lac. The decoding of the figure is based on presumption. The Revenue presumed money lending to Sohan Lal Sethi and Vimla Surana to the extent of Rs.10 crore and Rs.2 crore respectively by taking "1000" as 10 crore and "200" as 2 crore. No counter verification was made from those to whom money was alleged to have landed. At the best, the Revenue could have taken one equals to 1000. The brokers were not examined despite named therein. In view of the above, even the calculation of amount was made without counter verification and on hypothetical basis. The currency note of different denomination was taken as promissory note on surmises and conjectures. No evidence to receive interest was available. Addition in those circumstances can be made on "peak credit" basis and, as per the aforesaid, total comes to Rs.2,36,000/- instead of Rs.3,36,50,000/-.
4. It is further stated that on 20th November, 2012, the Settlement Commission directed the Revenue to check the calculation on "peak credit theory" but without receiving comment, the decoding was made by treating 1 equals to 1 lac. The currency notes were containing signatures of the petitioner, which could not have been if the money is to be advanced, rather it was a case of receiving emeralds on approval. In view of the above, the Department failed to discharge its burden as per Section 132(4A) as well as under Section 69 of the Act of 1961. It is also stated that if the amount was advanced since 30th September, 1995 and onwards, there is no evidence to show repayment of it, which cannot happen in the case of money lending. All these aspects are relevant but were not considered by the Settlement Commission. The "peak credit theory" was also not applied though no objection for it was made by the Department. The order was passed with pre-determination. The Commission made an arbitrary, illegal and unsustainable order under Sect
